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Germany: Businessmen Condemn New Government's Tax Proposals

Munich, 9 November 1998 (RFE/RL) -- Germany's new Left government is due tomorrow to present its first proposed legislation when Finance Minister Oscar Lafontaine unveils long-awaited tax reforms. But many German businessmen have already condemned the tax bill as a "bottle of poison."

Lafontaine's plan would end many of the tax subsidies currently enjoyed by the business community. One major target is said to be tax benefits now provided in some situations to those who make a profit selling their business or part of it.

Some sources close to the government say the Finance Minister may also remove some of the tax concessions now enjoyed by farmers. The government is said also to want to stop the common practice of hiring workers under temporary contracts and paying much of their wages into tax havens such as the Channel islands or Luxembourg. Other reports say the government may also increase the taxes paid by those who receive a lump sum in severance pay when they leave a job.

The dismay of German businessmen at the government's plan was expressed recently by Rudolf von Wartenberg, director of the Association of German Industrialists. He said that, because they undermined the growth of German business and industry, from 60 to 70 of the measures proposed by the Finance Minister would work against the goal of finding new jobs for the unemployed. In a statement to the media, von Wartenberg said: "Apparently the measures come from a bottle of poison with the label: How to Burden Industry."

Some of the Finance Minister's reforms have also upset members of the governing coalition of Social Democrats and Greens. Experts were still working early today to meet some of their objections. Yesterday, the Economics Ministry said some planned tax measures had been dropped because they might cause too much damage to small- and medium-sized businesses.

The government led by Chancellor Gerhard Schroeder says its tax plans should not come as a surprise to anyone. Schroeder himself told a television interviewer last night: "One of our election promises was to eliminate tax loopholes so we could lower taxes. Now we are keeping our word."

Schroeder and Lafontaine hope to reduce taxes by 57,000 million marks (about $35 billion) in three stages ending just before the next elections are due in the year 2002. The government believes that about 84 per cent of the reduction can be covered by closing tax loopholes for businessmen and special subsidies for some industries.

Next year, the first year the tax reforms will take effect, the government hopes the proposed measures will earn about 11,000 million marks (or $6.7 billion), allowing taxes on private citizens to be reduced by close to 10,000 million marks. Officials say that the proposed tax reductions will put 2,400 marks (just under $1,500) in the pocket of every tax-paying man and woman.

Officials also say the dismay with the tax plan expressed by some within the coalition is due to their not having realized how extensive the reforms would be. The officials admit that there have been protests from many sides, especially from energy-intensive industries concerned about plans for new taxes on oil, gas and heating oil. Farmers have also protested about the planned removal of some of their current tax benefits and, some officials say, Agriculture Minister Karl-Heinz Funke has appealed to Lafontaine to soften the blow to farmers. The trade unions, the government's strongest supporters, are likewise said to be unhappy with some measures which, they believe, may be unfair to small businesses.

"Suddenly no-one wants reform," said a government official, adding: "Or at least they don't want a tax reform that hurts them. They all say, don't tax me --tax the others."

Despite the present turmoil, opponents of Lafontaine's tax proposals have ample time to try to soften them. After the draft reforms are presented to parliament, they go to its finance committee and to other experts for examination and review.

Government officials in Bonn say it will probably be March before the proposed reforms come up for a vote. Whatever remains of them by then will almost certainly become law because the Left Coalition enjoys a comfortable majority.